Truth Will Out

By

Alan Abelson

Updated Oct. 11, 2004 12:01 a.m. ET

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SHOCKED! WE ADMIT IT: We were profoundly shocked by the findings reported last week by Charles A. Duelfer, this nation's top arms inspector, that Iraq had destroyed its stockpiles of weapons of mass destruction a dozen years before we invaded the bloody country.

What we found so awesomely shocking was that Saddam Hussein was telling the truth. That badly shakes a man's faith. For if you can't trust Saddam Hussein, not the least evil wretch ever to stalk the earth, to lie, what can you believe in?

Nor, the report makes clear, was this a passing aberration. The man had become positively possessed by a demonic urge to tell the truth, as evidenced by the discovery by Mr. Duelfer and his 1,200-strong team that those infamous two trailers that the CIA tagged as biological warfare labs were, as the Butcher of Baghdad insisted, pumping stations for weather balloons (Saddam had long nursed a burning a desire to have an inflated likeness of himself float proudly in the monster contingent of the famed Macy's Thanksgiving Day parade).

It's always possible, of course, that there was a method to his madness and that Saddam was cunningly saving the big lie for something truly important. Like where he had hidden his stash of pin-ups snipped from the pages of Playboy and Penthouse and, a fervent admirer of Linda Lovelace, his cherished collection of adult movies. (His cultural inclinations may strike you as perhaps a little kinky, but, as the French say, each to his own taste, and they should know.)

In any case, it's no wonder that Dick Cheney hailed the report as vindicating the decision to go to war. All due credit to the vice president for grasping the deeper implications of the Duelfer revelations: A hardened liar like Saddam Hussein who is so unprincipled as to tell the truth was a grave menace to global stability.

Just imagine, if you will, what horrors would issue were heads of state to routinely embrace candor. Alliances would crumble, the world order would be rent by interminable conflict, the planet would tremble on the brink of the abyss. Thank heavens Saddam's lips have been zipped, and none too soon.

As it is, politicians are universally in bad repute. In this fair land, for example, a recent poll showed that on the ladder of popular esteem they stood just a tad above the bottom rung occupied by corporate executives, entertainment types and, naturally, lawyers. These last were graded a C-minus rating for trustworthiness, while the politicians got a shaky C, on a sliding scale of A to F. Talk about grade inflation!

With a little over three weeks of the campaign to go, there's still more than enough time for the pols to muscle aside the CEOs, glitterati and ambulance chasers in the race to the bottom.

The only obstacle for them is that they suddenly fall prey to the Saddam syndrome and start to tell the truth. We checked in with the most astute political savant we know -- our friendly neighborhood bookie -- and he assured us the odds against that happening were off the board.

THE ONLY GOOD NEWS on the employment front worthy of mention was that Howard Stern snared a $500 million contract to switch from his usual broadcasting roost to
Sirius Satellite Radio
in 2006, when his present contract is up. Mr. Stern, a loose staple of morning radio, devotes a great deal of his chatter to anatomical analysis and matters biological.

Despite this laudatory scientific bent, he has run afoul of the FCC, which has taken severe objection to his forthrightness in expression. Since Sirius is a pup of a company, which in five years has managed to lose $1 billion, we do hope that Mr. Stern was canny enough to get at least a token payment -- say a measly million -- up front.

Otherwise, as intimated, there's little cheer in the employment picture. Even that incorrigible optimist Ralph Nader owned up to the fact that he's not apt to get the job he has been so earnestly seeking for eight years now. Of course, Mr. Nader at least can look forward to getting another shot in '08. A lot of other folks don't enjoy that cushion of comfort.

That was evident on Friday when the Bureau of Labor Statistics released its September employment report, and it was just plain ugly. Payrolls grew by 96,000, far below the expectations of most of the seers whose consensus guess was for a 148,000 gain. What's more, August's rise, originally tabbed at 144,000, was revised down to 128,000. The workweek was flat with the previous month's rather feeble reading. Average hourly wages were up 0.2%, off a tick from August. And manufacturing employment, which had been showing signs of life this year after a long dry spell, fell back again, losing 18,000 jobs.

But, please, don't blame those meteorological serial nasties, the hurricanes. There was kind of a wash, if you'll pardon the expression, between the number of folks who couldn't get to work and those who, in the wake of the big winds, hired on to clean up the mess and rebuild.

Actually, as Philippa Dunne and Doug Henwood point out in their excellent review of the data in the Liscio Report, the overall tally doesn't by any means tell the story of just how skimpy job creation in the private sector was last month -- all told, it accounted for only 59,000 of the total. The rest -- more than one-third -- came by grace of the federal and state governments.

Using history as a guide, Philippa and Doug reckon that "we're now 9.3 million jobs below where we'd be in a 'normal' recovery." Adding in the benchmark revisions still leaves the count nine million below the aggregate payroll addition we should have seen.

They also offer some pertinent observations on the incredibly shrinking labor force, a phenomenon that's largely responsible for the deceptively modest unemployment rate. The labor market seems to be suffering, in their parlance, "serious withdrawal symptoms." In September, even though the population grew by 264,000, the labor force shrank by 221,000. Over the past year, it has expanded less than half as rapidly as has the population and a mere one-third of the rate it enjoyed from 1980 to 2000.

Thanks solely to what they term "the massive withdrawal" from the labor market, the unemployment rate has held steady. Suppose, instead of contracting, the labor force had grown over the past two months at the same pace as it did in the previous two. Further suppose the dropouts had been counted in the ranks of the unemployed. The result would be a jobless rate of 6.2%, not the relatively benign 5.4% that was reported. And, we might add, if one includes the so-called marginally attached workers and part-timers who really want to be working full time, the unemployment rate weighs in at a formidable 9.4%.

The future job picture doesn't shape up as exactly rosy, either. The placement firm Challenger, Gray & Christmas tallies some 107,000 planned lay-offs announced in September. That was up 45% from August and 41% from September 2003. What's more, the dirgeful bell continues to toll: Last week
Bank of America
targeted 4,500 jobs for jettisoning and
AT&T,
7,400.

Pretty grim stuff.

THE STOCK MARKET, which started out October in fine fettle, ran out of steam in the final two sessions last week. The culprit was a splash of reality in the form of the remorsefully upward push of crude, blasting through the $50-a-barrel barrier like a knife through butter, and the dismal employment numbers.

To take the last first, the disappointing job report initially set off the familiar tug of war between concern for what it signaled for the economy (slower going ahead) and for what it signaled for the Fed (change the wording in the next monetary policy statement to "very measured" from "measured"). Investors sighed and made the sensible decision that the economy was a lot more important than the Fed.

In truth, whatever the Fed says, it might have to act the monetary meanie. For as MacroMavens' Stephanie Pomboy points out, with China increasingly recycling the flood of dollars it gets from sending us the product of its factories into commodities instead of our securities and Japan cutting down sharply on its purchase of Treasuries, Greenspan & Co. may have no choice but to keep nudging up interest rates, if only to keep the dollar afloat.

China's decision to abandon attempts to cool off its overheated economy before the job was half-done is reflected in the resumption of the global bull market in commodities, notably the spurt in copper and aluminum as well as oil. In the fullness of time, that is likely to mean a hard landing for the Sino economy, even a very hard landing, a very unpleasant prospect for the Chinese and everyone else. Meanwhile, for us in particular, it significantly enhances the likelihood of stagflation, which is the economic version of being up a creek without a paddle.

Investors have been merrily ignoring such warning signs on the economy as soggy consumer sentiment, spotty- at-best retail sales and the wariness of corporate chieftains, evident in their failure to invest their ample cash in big-ticket projects and their continued eagerness to sell their own stock.

A poll of the high-powered CEOs who make up its membership by the Business Council lends sharp emphasis to their extraordinary caution. Some 70% of these corporate movers and shakers forecast growth next year of between zero and 2%. That speaks for itself, and what it says is pretty chilling.

Our advice to all you widows and orphans out there is to listen up and pay heed.

THE SPECTACULAR RUN in oil has been accompanied by an equally spectacular run in tanker rates, up around 50% this year, and, not surprisingly, in the stocks of tanker companies. On the last score, the shares of outfits like
Knightsbridge Tankers,Nordic American Tanker Shipping
and
General Maritime
have doubled or more so far this year, with
OMI,Tsakos Energy Navigation,Stelmar Shipping
and
Frontline
not far behind. What prompts this note are two things: sheer admiration for the performance of said companies and their stocks-and indications of, to use the obligatory nautical phrase, rougher waters ahead. The latter, as it happens, is the considered opinion of some smart types who are old tanker hands. Their argument is elegant in its simplicity: There's a wave of new tankers coming on stream (that strikes us as a mixed aquatic metaphor, but never mind) that's apt to dampen both tanker prices and investor ardor for tanker stocks.

Confirmation of this notion was the essence of a recent story in the Malaysian Business Times. While we lay claim to a wide range of reading matter, we must confess this publication is not part of our usual fare. Accordingly, we're most grateful to the chap that put us on to it.

For the piece quotes Nigel Gardiner, the managing director of Drewry Shipping Consultants, which boasts an estimable reputation as a source on what's happening and likely to happen in tankers, as a warning that rates may tank (sorry about that) starting next year and sink further the next couple of years after that.

In a nutshell (or an oilcan, perhaps), Mr. Gardiner reckons that the projected increase in oil-tanker supply between 2005 and 2007 will approach 55 million tons, the increase of tanker demand will rise only 20 million tons. And, old salts tell us, the iron rule of supply and demand is as applicable on the high seas as anywhere else.

In his calculations, Gardiner takes due note of the effect of scrappage. But he also points out that what he calls "a comparatively young age profile" indicates "low levels of demolition in the next few years." Which, in turn, means that "deliveries from the known order book," as he puts it, will swell supply.

In short, as the headline on the piece in the Malaysian Business Times sums up with nice understatement, "Tanker freight rates may come under pressure."

This doesn't necessarily mean that investors en masse are going to toss their tanker stocks overboard tomorrow. But, lest you forget (we often do), markets are supposed to be an anticipatory mechanism. So we suspect that rates will start to back down before that increasing flotilla of ships slides down the ways. And the stocks will start to come down before the rates do.

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